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CitiFinancial to pay $1.25 million for mortgage disclosure violations

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By Dina ElBoghdady
Thursday, March 25, 2010

CitiFinancial, a Baltimore-based consumer finance unit of Citigroup, agreed to pay $1.25 million in penalties for not fully disclosing its mortgage transactions to the federal government, state regulators announced Wednesday.

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CitiFinancial did not report 91,127 residential mortgage applications from 2004 through 2007 because of "unintentional" internal programming errors, according to a settlement agreement between the company and 35 states. The loans represent about 10 percent of the company's mortgage transactions during that time.

The reporting errors went undetected until Massachusetts regulators examined a sample of the unit's mortgages and asked why some were not disclosed to the federal government, as is required by law.

CitiFinancial followed up with its own investigation, discovered the errors and has since corrected its reports to the federal government. The company denied that it had violated federal law by underreporting its loans, and the settlement agreement said there is no evidence that the errors harmed consumers.

"The company is pleased to have corrected this reporting error and reached this agreement to put the matter behind us," the company said in a statement.

In a briefing with reporters, state regulators said it is tough for them to determine whether lenders are violating consumer protection laws if lenders do not properly report transactions, as is required by the Home Mortgage Disclosure Act.

That law, enacted in 1975, requires lenders to report public loan data that regulators use to determine whether financial institutions are meeting the credit needs of the communities they serve and to identify possible discriminatory lending patterns, state regulators said.

As part of this process, lenders must report characteristics of each loan application (even if the loans are denied) and of the borrowers who applied for them, including the borrowers' race, ethnicity and gender.

The $1.25 million penalty is the largest ever related to the Home Mortgage Disclosure Act, said Steven L. Antonakes, the Massachusetts commissioner of banks. The states involved in the settlement, including Maryland and Virginia, can use the money for investigations or educational purposes or add it to their general funds.

The mortgage disclosure law "remains the primary tool we utilize to ensure compliance with fair lending laws and regulations," Antonakes said in a statement. "By failing to accurately report all required transactions, CitiFinancial hampered our ability to complete that assessment."

The settlement agreement says CitiFinancial hired a nationally recognized expert who reviewed the loan data and concluded that "there were no practically significant pricing disparities in Massachusetts or nationally on the basis of race, ethnicity, or gender" in the original filing to the federal government or the new one.

This is not the first high-profile incident involving CitiFinancial, formerly the financial arm of Travelers Group, which was acquired by Citicorp in 1998.

In 2004, Citigroup and CitiFinancial agreed to pay a $70 million fine for consumer lending violations, including raising the cost of loans to poor and credit-starved customers by requiring that they have unnecessary co-signers. CitiFinancial denied any wrongdoing in that matter.


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